Creating a Sustainable Future Through the Power of Investment – a Message from Asia
Asset Management One Co., Ltd (AMO) is a member of the Advisory Board of Net Zero Asset Managers Initiative and is one of the largest asset managers in Japan, with asset under management of around JPY 60 trillion（around US$ 510 billion. AMO has issued its first Sustainability Report in October 2021 to convey the approach and results of its stewardship activities.
President and CEO of Asset Management One Co., Ltd, Akira Sugano, has released the following statement in the report.
We will remain one step ahead. Our goal is “creating a sustainable future through the power of investment.”
Since 2018, we have continued to release our Stewardship Report to convey our approach and the results of our stewardship activities to our stakeholders. From this year, we are changing the name of the report to the Sustainability Report.
This is not simply a change of name but, together with our corporate message of “creating a sustainable future through the power of investment,” which we announced in January 2021, indicative of our firm conviction to incorporate sustainability in overall business strategy and management.
While stewardship activities remain an important commitment, we believe that real change in all corporate activities is needed now as well as change in the thinking and actions of every individual. It is easy to say we want to be a company “creating a sustainable future through the power of investment.” But, to really give meaning to these words and to make an impact on the world, we need to act with conviction and courage and to generate outcomes, with the support of all of our stakeholders.
There are various challenges and conflicts that affect our efforts to promote shared values among employees, seek understanding of our target direction by clients and conduct earnest dialogue with investee companies. During the past year, we have taken on such challenges through company-wide initiatives. We are still halfway through the process, or one could say that we have only just begun. This report aims to convey our target direction and the journey to challenge the status quo and to achieve our vision of being an asset management company “creating a sustainable future through the power of investment.”
Issues facing the world — signs of hope
The issues confronting humanity are becoming more serious and complex. This includes the global increase in abnormal weather and natural disasters caused by climate change, the prolonged menace of Covid-19, human rights violations and impacts on socially vulnerable people, widening inequality and divisions.
In particular, as a result of the lack of attention paid to climate change and biodiversity degradation, together with the pursuit of wealth in traditional capitalist values, we are very close to the point of no return. These two issues are obviously interdependent and the consequent enormous impact on the earth, human life and social activities has been proven scientifically. The Sixth Assessment Report of IPCC (the Intergovernmental Panel on Climate Change) was released on August 9, ahead of the COP26 scheduled for November 2021. This report marks a change in its conclusion concerning the influence of human activities as a cause for global warming. Up until the previous report, human influence was referred to as being “extremely likely,” whereas this new report states that human influence is “unequivocal.” The report also states that the risk from such impact is not a reference to a possible future event, but there is a strong assertion that the risk is already materializing. Therefore, we should not delay taking action and leave these problems for future generations.
Many of the issues surrounding the environment have so-called thresholds, where the earth by itself will be unable to rectify the issue once a tipping point has been reached. However, there are issues in our society that can be rectified by our own efforts. Nevertheless, the spread of Covid-19 has once again highlighted some of the social issues that have long prevailed in humanity. As if in violation of the important pledge to “Leave No One Behind” in the Sustainable Development Goals (SDGs), there is a never-ending succession of serious human rights-related events and widening economic inequalities across various areas, which are also resulting in global divisions and conflicts.
Information reported in newspapers and various media is often serious and can sometimes make people feel numb and perplexed about what to do. However, there are also some signs of hope. This is because there is a real sense of change taking place in the approach by Japanese investors, who are the core of our clients, and our investee companies. We have received positive reactions from many institutional investors and investee companies with words of encouragement and collaboration for AMO initiatives in our dialogue with clients following the establishment of our corporate message of “creating a sustainable future through the power of investment” and after we joined the Net Zero Asset Managers initiative (NZAM). The stronger stance taken by the Japanese government is also encouraging.
Impact of our message “creating a sustainable future through the power of investment”
A year ago, we spent a great deal of time discussing and defining our corporate purpose, or raison d’etre in society, which led to the creation of our corporate message: “creating a sustainable future through the power of investment.” This discussion did not originate with the idea of creating some sort of phrase, but the message came about as a natural progression within the discussions as we shared our intention to incorporate sustainability into business management. This coincided with a surge of Covid-19 and all discussions took place in what was initially an unfamiliar remote working environment. While we always strive to act professionally in the best interest of our clients, facing such a change of environment and no longer seeing each other in the office every day, both senior management and employees started to have a real sense that there was a need for an inspirational focal point in times of doubt.
The corporate message was only established in January 2021. Yet, we feel that there have been certain results, albeit small, even in the short time that has passed. The biggest change is the natural incorporation of the perspectives of ordinary individuals into the discussions between employees. We held a number of workshops to share this message with employees. It became evident that earnest attempts were made to respond to questions such as what are individual conflicts and what do people want, and what value can we provide under such circumstances. Even if the assets we manage come directly from institutional investors, many of the ultimate beneficiaries are individuals. We feel that the mindset of approaching issues from ordinary individual’s perspectives is becoming established. In addition, the creation of investment products is increasingly aimed at being a trusted partner of our clients and creating long-term relationships. In fact, this corporate message helps us explore new product concepts and communicate with distribution companies more effectively. So there is a certain shift in the long-term direction in each area of our business. We believe that having a common language has significantly accelerated our discussions.
However, there are also challenges. The first is encouraging each and every employee to embrace the message. We have heard on multiple occasions at town hall meetings that it is hard to see how to link this message to the day-to-day work. It is not possible for all employees to become empathetic in a short period of time. We would like to capture various opportunities and use various means to encompass all employees.
The second issue is whether the pursuit of sustainability really leads to investment performance. There is no silver bullet and the issue does not have an instant answer. It is important for every individual to have an in-depth understanding of how the major issues facing the world will impact future corporate performance when approaching their investments. This requires not only a short-term but a medium- to long-term perspective, while attention also needs to be paid to non-financial information as well as financial information. In addition, management also needs to acknowledge the possibility of deterioration in short-term performance. Some investment managers may also face a major change in values, particularly those who are veterans and have established ways of doing things built up over a long time. Senior management must continue to show its support, so that those portfolio managers have the courage to revise their approach away from only pursuing investment performance. We have been preparing to be “one step ahead” in all of these initiatives. Taking a half-step forward (or initially not moving at all) to consider the circumstances could also be an approach that may ultimately lead to winning. However, we have chosen to be a frontrunner and to stay one step ahead, given the current circumstance of a world facing many crises. A person leading a race has to directly confront great resistance and the risks associated are also larger. However, there are also views that cannot be seen without being one step ahead and the potential benefits are also larger. We believe that if someone needs to do it, it should be AMO.
Our preparedness and determination is indicated in the message, “creating a sustainable future through the power of investment.”
Implementing sustainability transformation (SX)
The next step is to implement what has been discussed and shared as our corporate purpose. That is, after sorting out the “Why?” we will establish the “How?” and the “What?” We are truly at the point when we must undertake the recently talked about “sustainability transformation (SX)” for ourselves. We believe that failure to do so would prevent us from realizing substantial value.
“Transformation” is accompanied by pain. As noted above, no one else has previously experienced the path we are taking towards the future. To progress, we may need to discard our previous conventional wisdom and sense of values and fundamentally revise our thinking and approach. We were aware of the difficulties were we to simply proceed under the existing organisational structure. This is because in some circumstances we may reject our past selves. In addition, the related areas are broad and cannot be addressed individually. This includes the various sustainability-related news, the actions of regulatory authorities in Japan and overseas, recent trends in ESG strategies, and information released by international institutions and NGOs. And such development has been accelerating.
So, AMO launched a cross-functional coordination to progress the sustainability transformation project (alias SXPT), spanning the entire organization and reporting to the President. The Head of the Investment Division and the Head of the Corporate Sustainability Office are jointly leading this project. The heads of all divisions (executive officers) participate in the project as Steering Committee members, and senior executives are leading each of the four working groups (WG) in this SXPT project.
The core of these four working groups is the Materiality Identification WG. When we refer to ESG investments, there are two main approaches. One is to use an abundance of ready-made tools and methodologies and another one to discuss and tackle from the root of the issues that need to be solved. This may at a glance appear to be a diversion, but the Materiality Identification WG selected to use the latter approach. This is because without doing so, we would not be able to do what we really should as an asset management company aiming at “creating a sustainable future through the power of investment.”
The WG directly considers and extracts global issues from an enormous number of reports and news releases as well as documents released by global think tanks and NGOs, etc. It then looks at the history and background of such issues and examines the tradeoffs between the issues. The fact that there have been careful and thorough discussions gives us great strength and confidence. The materiality map, which was the initial outcome, has become the basis for indicating the direction of our activities. Among the respective items listed on the materiality map, there are items that present a shared sense of crisis by the world and a clearer link to the financial materiality of companies, while for some other items, the impact on corporate value and causal relationships are still not evident as what is so-called “non-financial.” In other words, we need to consider the possibility that something in future could trigger a significant change in position. We track such trends and analyze the timing of an impact, which we also discussed with various stakeholders, so this materiality map has real value. This is extremely challenging and also takes time. Furthermore, since no one really knows at the present point if this is correct, we believe that scientific analysis is required that includes forecasting to the greatest extent possible.
Moving forward together with our clients and all stakeholders
The efforts of AMO by itself are not enough to solve all the challenges we have noted to date. AMO’s employees play a most important key role in starting initiatives so that we can have authentic dialogues with all our stakeholders. This is because without a real passion of each and every employee, we will not be able to acquire the empathy of other stakeholders.
On either side of asset managers in the investment chain are assets owners, who are our clients, and the investee companies. We would like to continue playing a proactive role in the investment chain and moving forward together to address the key challenges facing the world. The government authorities and other market participants as well as the civil sector such as NGOs are also important stakeholders with whom we work closely.
We will continue our engagement and dialogues with all stakeholders to share our aims and work collaboratively. We believe that building up these dialogues one by one will help us to “move big mountains” and “create favorable flows,” which will eventually help to drive the world in a desired direction.
Link to full report